ABSTRACT
The highly dynamic nature of the COVID-19 crisis poses an unprecedented challenge to policy makers around the world to take appropriate income-stabilizing countermeasures. To properly design such policy measures, it is important to quantify their effects in real-time. However, data on the relevant outcomes at the micro level is usually only available with considerable time lags. In this paper, we propose a novel method to assess the distributional consequences of macroeconomic shocks and policy responses in real-time and provide the first application to Germany in the context of the COVID-19 pandemic. Specifically, our approach combines different economic models estimated on firm- and household-level data: a VAR-model for output expectations, a structural labor demand model, and a tax-benefit microsimulation model. Our findings show that as of September 2020 the COVID-19 shock translates into a noticeable reduction in gross labor income across the entire income distribution. However, the tax benefit system and discretionary policy responses to the crisis act as important income stabilizers, since the effect on the distribution of disposable household incomes turns progressive: the bottom two deciles actually gain income, the middle deciles are hardly affected, and only the upper deciles lose income. Supplementary Information: The online version contains supplementary material available at 10.1007/s10888-021-09489-4.
ABSTRACT
In many advanced welfare states, welfare recipients often receive benefits for long periods. This persistence of welfare receipt can be caused by two distinct mechanisms: genuine or spurious state dependence. Knowledge of which of the two mechanisms drives the observed state dependence is important because the policy implications are different. Most of the empirical evidence on state dependence relies on survey data. However, survey data on welfare receipt are subject to substantial measurement error (i.e., misreporting of welfare benefit receipt), which may also bias state dependence estimates. This paper uses rich linked survey and administrative data to measure the effect of misreporting in the survey data on the estimated state dependence in welfare receipt in Germany. We find a rate of underreporting of welfare benefits of 8.6%. Recipients with relatively good labour market chances tend to underreport benefits more frequently. Overreporting benefits is less pronounced with a rate of 1.6%. Within the survey data, we observe more transitions into and out of the welfare system. However, our estimates of state dependence in welfare receipt based on a dynamic random effects model reveal that the effect of misreporting on estimated state dependence is small, even when we distinguish between working and non-working recipients in the model.
